The UK has a proud tradition of leadership in climate action and global finance. The urgent need to rebuild the economy in response to the COVID-19 pandemic provides the government with an opportunity to issue a sovereign bond (‘gilt’) that supports both a green recovery and social renewal. This would have significant benefits both domestically and internationally, particularly in the run-up to the COP26 climate summit in November 2021.

The Green+ Gilt would build on the growing issuance of green and social sovereign bonds across the world. It would mark an important step forward in the development of the global green bond market by showing how the use of proceeds can simultaneously deliver environmental benefits, reduce inequality and help us build back better.

Based on investor feedback and analysis of recent market precedents, this paper sets out how a Green+ Gilt could be structured as a cost-effective instrument, able to meet the government’s goals of both “levelling up” regional inequalities and achieving net-zero without the need for hypothecation.

The UK’s first green sovereign bond, issued at scale, would catalyse the development of the sterling green bond market, and would send a signal to global capital markets and policymakers of the UK’s commitment to sustainable finance.

In sum, a Green+ Gilt could help to finance an ambitious COVID-19 recovery programme, and would deliver five main benefits:

1. Environmental: tackle climate change by creating funding for projects that contribute to a resilient, net-zero economic recovery.

2. Social: create ‘green collar’ jobs, build skills and channel investment across the country into areas of greatest need.

3. Fiscal: provide the UK government with lowcost funding and offer a cost-neutral way of diversifying the gilt investor base.

4. Systemic: showcase the UK financial system, catalyse further green and social bond issuance and facilitate the exporting of green finance and broader sustainability expertise.

5. Global: demonstrate UK leadership ahead of COP26 and the G7 in 2021, stimulating international momentum as other countries issue similar types of sovereign bonds.

“The UK needs a strong and sustainable recovery from COVID-19. A Green+ Gilt is a key instrument that the Government should deploy to help channel savings into programmes and projects that enable us to build back greener in the places that need it most. It can signal the direction of future opportunities and reduce perceived risk. Now is the time to be ambitious. Green investment can have rapid impact and drive strong and sustainable growth.”
Professor Lord Nicholas Stern

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